"The Spirit in the Walls:" APattern for High Performance at Scania

H. Thomas Johnson and Anders Brams

cania, the Swedish maker of heavy-duty trucks, level focuses on "the spirit in the walls" that modular buses and diesel engines, has parlayed a modular thinking creates. Sproduct design strategy into a robust formula for Finally, a concluding section explores resemblances low costs and sustained profitability. But modularization between modularization at Scania and patterns of modu­ has contributed to Scania's high performance for more larization found in nature. reasons than just effective design, component standard­ Part-Number Counts and Low Cost: ization, and parts commonality. It also has created a cus­ It's More Than Meets the Eye tomer-focused mode of thinking among the company's Everyone believes that a manufacturer will improve managers that is referred to as "the spirit in the walls." costs and profitability by reducing the number of differ­ This spirit supports a unique web of relationships with ent parts in its products. And for good reason. With fewer patterns that transmit profit-enhancing behavior among different parts, less effort and resources are required to Scania people. design, make, and service a product line. Accordingly, Scania people achieve superior financial perfor­ activity-based cost management systems routinely use mance records by focusing their attention on mastering part-number count as a cost driver to estimate how much and executing patterns resembling those found in nature, chiefly the pattern that seems implicit in the process of evolution itself. Their approach to modularization Scanla at a Glance enables them to build increasingly complex varieties of With headquarters located in Sodertalje, Sweden, about 50 kilometers south of customer-pleasing products and services upon a founda­ Stockholm, Scania is aworld-wide manufacturer and marketer of heavy trucks (16 GVW tion of exceedingly parsimonious means. More than any­ tons and above), buses for over 40 passengers, and industrial/marine diesel engines. thing else, their ability to execute results that are "rich in Following acommon pattern among European truck builders, Scania is ahighly integrat­ ends, but simple in means" accounts for Scania's ed producer, making all critical components that go into its trucks. The company employs remarkable success. around 20,000 people worldwide, with production facilities in five countries - Sweden, the Netherlands, France, Brazil, and Argentina - and assembly plants in more than a This brief case highlights the pervasive influence of dozen additional countries. Scania trucks, buses, and engines are sold in over 100 coun­ Scania's modular design strategy by starting at the most tries on all continents. Over 95 percent of Scania's output is sold outside Sweden, with basic level with a discussion of part-number commonali­ about 60 percent going elsewhere in Europe. However, Scania's largest single national ty. The discussion then advances through three succes­ market in all its products is Brazil. Alone among truck makers in the world, Scania has sively higher levels of generalization: The first level been profitable every year for more than 30 years, despite the very cyclical nature of its considers certain interactions between product and pro­ markets. As of early 1995 Scania's worldwide sales of trucks and buses are at record cess design; the second examines the change in thinking levels, more than 45,000 units per year. In 1994 the company registered operating that modularization has generated at Scania; the third income of about SEK 4billion on revenue of about SEK 22 billion. (7.5 SEK~1 U.S.)

9 Mayljune 1995 Every truck Scania sells is designed and built to cus­ tomer order. Nevertheless, they use about half as many dif­ ferent part numbers to produce the same number of trucks as does their nearest competitor, Volvo. Not surprisingly, Scania's profitability exceeds that of Volvo. But other man­ ufacturers should not assume, therefore, that they can match, or even come close to Scania's performance simply by using cost-based targets to drive design engineers to reduce part-number counts. Indeed, low costs and robust profitability do not come to Scania by driving employees Figure 1. Cab transport from Oskarshamn to Scania's chassis-assembly in Angers, and suppliers to achieve cost targets. They come from dis­ France. ciplined attention to mastering design details and from company-wide commitment to goals that transcend local financial performance will improve by reducing the self-interest. In short, Scania excels by focusing on how it number of different parts. does business, not by focusing on eliminating cost However, it is not well understood that cost-driver drivers, such as part numbers, in order to cut costs. information may capture only a small fraction of the Modular Product Design: financial improvement that part-number austerity makes "Rich in Ends, But Simple in Means. " 1 possible. This is because such information assumes a lin­ Leif Ostling faced a daunting challenge in 1989 ear and essentially static relationship between costs and when he took over the reins as the youngest general man­ part-number count. It focuses attention on what work to ager (CEO) in Scania's century-long history. For decades do - reduce the number of different part numbers ­ Scania had enjoyed a reputation as one of Europe's pre­ but it implicitly assumes that continuing to pursue busi­ mier manufacturers of heavy trucks and buses. Moreover, ness as usual is how work is to be done. In other words, they had turned a profit during every one of the past 30 or activity-based cost-driver information tells managers to so years, a record unmatched anywhere in the world in reduce costs by eliminating a cost driver (such as part their highly cyclical industry. The challenge Ostling faced numbers); it does not necessarily provoke inquiry into how a company's modus operandi causes part-number was to perpetuate Scania's fine reputation for quality and count to affect profitability. Managers who are driven by to continue the company's unbroken profit streak while these cost-based targets to economize on part numbers, leading the way to changes that will keep Scania compet­ but who still conduct business as usual, never will know if itive in the global economy of the 1990s, and beyond. a different approach to doing business might reduce part To address this challenge, Ostling identified key numbers and yield even deeper and longer-lasting finan­ forces responsible for Scania's past success. His own cial improvement. career with the company, stretching back almost 20 Scania offers a fascinating glimpse into the extraor­ years, certainly made him familiar with the company's dinary gains a company can capture by asking new ques­ current policies and practices. But he felt more should be tions rather than by driving business as usual with cost done to articulate definitively the origins and evolution targets. Like Toyota among auto makers, Scania stands of those forces that seemed to set Scania apart from the alone among heavy-truck makers for low costs, for high pack. Therefore, he asked two consultants (SAM quality, and for an unbroken record of annual profits that Samarbetande Konsulter AB, a Swedish consulting firm, stretches back at least 30 years. Also like Toyota, Scania and H. Thomas Johnson, an American business author achieves low costs without using cost targets to drive peo­ and professor) to conduct interviews with retired and ple's work. Scania is an excellently-managed company current Scania executives. From those interviews and with a unique approach to business that has enabled other research, this consulting team identified several them to achieve low costs and robust profitability while factors responsible for Scania's success (see box on p. manufacturing custom-made trucks and buses that are 11). Among those factors, however, the one that all par­ unrivaled for quality and performance. ties considered most important was the company's long- 10 Target Volume 11, Number 3 Key Factors Contributing to Scania's Success When asked to explain their company's remarkable success, current and retired Scania executives of the past 30 years recently Iisted the following practices: • expansion into new export markets slowly and deliberately, but continuously standing modular design strategy. • product range limited to medium and heavy trucks Modular product design has recently taken hold in • trucks assembled from carefully engineered modules built from aparsimonious set of many industries, including home building, small tool standardized components making, clothing manufacture, and even auto manufac­ • strong in-house design and development capabilities, without ignoring advances turing. Scania's design engineers began to explore the made by competitors concept as far back as 1970 and had a full-blown modu­ • rational production methods to build key components in-house larization program for trucks in place by 1980. The • saying no to making things that other companies do better objectives of this modularization program were to provide • development of close relationships with suppliers and vendors custom-built solutions to different transport problems, to • simplification of products and processes; reduction of tasks not associated with the core fabricate standardized components at mass-production business; encouragement of close cooperation between marketing and technical people costs, and to make it easier to modify truck designs as • knowing the value delivered to customers, holding the line on price and doing every­ new conditions arose. In other words, Scania adopted a thing possible to sustain high residual value for trucks modular design strategy in order to provide each cus­ • top managers must be engineers who grow up with who know the tomer with a high quality, cost effective, tailor-made processes and put profit before volume truck and simultaneously provide itself, Scania, with • every manager must know what it takes sell the best trucks high long-term profit. money can buy. Modular product design addresses a persistent con­ cern in industry; namely, reducing the cost of producing ever greater varieties of a product. 2 The principle behind ers to sell diverse varieties of end products, yet produce modularity is to divide a product into independent com­ them at the low costs one associates with mass-produced ponents, thereby making possible the standardization lines of homogenous products. In practice, it enables low and interchangeability of these components across a costs usually because component standardization and wide range of final product varieties. In principle, modu­ interchangeability permit reduced numbers of compo­ larity permits designers to create a diverse array of final nents to be fabricated in large batches and long produc­ products by varying only those features that affect the tion runs. Modules built from low-cost standard end result and holding all other features unchanged. In components can then be assembled-to-order at low cost other words, a modular design precludes having to rein­ in many varieties of end product.3 In fact, that is how vent the entire wheel every time there is a call for some­ Scania explained for many years how it could build cus­ thing different. tomized trucks at competitive costs, even though it does In designing truck cabs, for example, different not lead its industry in final product volume. dimensions and weights are needed to accommodate vari­ More recently, however, Leif bstling has begun to ous end uses and engine sizes. But it is possible to meet argue the merits of make-to-order component fabrica­ those differences and not vary the driver's station or the tion over scale economies of large-batch component windshield, both of which are identical in all Scania cabs. fabrication. He also has urged his colleagues to identify Thus, numerous variations in cab size and weight can be other, potentially much larger, sources of benefits from achieved by substituting among some, but not all, the a modular strategy, beyond those already ascribed to components used to assemble cabs. In that way the num­ component standardization. Consequently, Scania now ber of finished cab varieties can greatly exceed the num­ is embarked on a systematic study of these broader ben­ ber of different components used to assemble the cabs ­ efits. But before examining those other benefits, consid­ a pattern that might be described as "rich in ends, but er how modular design practices at Scania have simple in means." In all, Scania makes over 300 stan­ entailed much more than just reducing the number of dard variants ofheavy truck (from 16 to over 35 GVW different parts that go into products. tons) using no more than 6000 to 7000 parts (from a Managing Pattern (How Work is Done), system total ofabout 12,000 parts) in over 90 percent Not Results (What Work to 00) of all trucks sold - one-third to one-half as many Scania's modular design strategy is not a case of components andparts as other European truck makers. reducing component variety while continuing to pursue In principle, modular design enables manufactur- business as usual. They achieved a significant reduction 11 May/june 1995 Leif Ostling's estimates, product design and development costs fall more or less in direct proportion to the reduc­ tion of part numbers. And production costs per unit of a component also fall about ten percent when standardiza­ tion permits the quantity of a component in production to double. Finally, distribution costs, caused by parts ordering and storage, fall about 30 percent when the number of part numbers is cut in half. Ostling indicates the financial impact of Scania's modularization and component standardization program Figure 2. Scania's technical management on a test-track with competitors' products. by comparing the European operations of Scania and Volvo during the 1980s. In Europe the two companies produced and sold approximately the same number of trucks in those years, but Volvo's trucks required about in part-number counts by changing their modus twice as many part numbers. s Hence, product develop­ .. .product design operandi in the product design area. Indeed, Scania's ment costs at Volvo, averaging about 1.3 billion SEK per and development design engineers worked on their approach to product year, were nearly double the .7 billion SEK that Scania on costs fall more or design for over 15 years before they achieved full-scale average spent on product development each year. In addi­ modularization and component standardization by 1980. tion, Ostling estimates that Scania's more parsimonious less in direct They tested every critical part of a truck under every con­ parts selection generated average annual savings in pro­ proportion to the ceivable driving condition that Scania customers might duction and in distribution amounting to about .4 bil­ reduction ofpart experience, using static and dynamic tests with resis­ lion SEK. In total, then, Scania in that period enjoyed numbers. tance-wire strain gauges and modern electronic equip­ around 1 billion SEK more operating income per year ment to simulate driving conditions. The results of these than Volvo on account of its attention to modularization tests provided the mix of components in the modular and component standardization. matrix that now supports Scania's ability to sell and Undoubtedly any company can capture these finan­ make customized trucks at very low cost. 4 cial gains by using cost-driver targets to manipulate what It is inconceivable that top-down cost-focused pres­ people do, even if how they do business stays unchanged. sure to reduce part proliferation could have generated the Simply reducing part-number proliferation, for example, disciplined and persistent campaign of experimentation will cut costs across several areas, including product and testing that Scania's design engineers carried out in development, production, and distribution. However, if the name of component standardization over the past few traditional methods ofproduct design continue to be decades. That campaign is an indication that the differ­ used, reduced part-number variety will most likely ence in Scania's overall financial performance comes lead to reduced varieties of end products. In a sense, from people attending to patterns in how things are done. that results in "lean ends from simple means," not the They do much more than focus, in the name of results­ "rich ends from simple means" that Scania achieved as a oriented targets, on what is done. result of its disciplined approach to modular product Scania abandoned business as usual and adopted a design. By changing how the company did design work, new way of doing business first in the product design Scania's modular design strategy not only reduced part­ area, not the production area as so many other manufac­ number variety. It also, at no extra cost, increased the turers - most notably Toyota - have done in the past variety of end products the company could deliver to cus­ 20 to 30 years. Starting in the product design area does tomers. That increased end-product variety was, of course, have advantageous spill-over effects. Indeed, savings from the main objective of Scania's modular design strategy. No the reduction of part numbers due to modularization and one can say for sure how much this added product variety component standardization occur not only in the product improved Scania's financial performance, but it design area, but also cascade downstream into other undoubtedly generated substantial extra revenue, quite areas such as production and distribution. According to apart from the costs saved by part-number reduction.

12 Target Volume 11, Number 3 BUilding a Web of Relationships: "The Spirit in the Walls" bstling and his executive team at Scania have set out to identify and strengthen additional sources of strength in their modular strategy, beyond component standardization itself. In particular, they are discovering that modular thinking has helped Scania generate a web of relationships among people that reinforces and trans­ mits profit-enhancing patterns of behavior throughout all parts of the company. Agoal of the company now is to build and strengthen those relationships. Remarkably, the Scania organization resembles less a collection of separable parts that coexist for the purpose designing new components and parts so that they are of generating profit than it resembles an interrelated web interchangeable with the part they supercede in existing of relationships that energizes people's ability to serve vehicles. One reason this customer has stayed with Scania people. The modular design strategy contributes to this trucks for many years is that he knows he can readily web by engendering in Scania people a customer-focused swap parts from old Scania trucks to his new ones, some­ spirit - referred to in Scania as "the spirit in the walls" thing that no other make of truck permits him to do. - that subordinates local, functional priorities to sys­ These examples demonstrate why Scania enjoys a higher temic goals. It is this spirit that connects Scania's man­ customer retention rate - 80 percent - than do either agers, employees, customers, and suppliers in a web of of its two main European rivals: about 70 percent at relationships that seems to generate profit naturally. The Volvo and about 60 percent at Mercedes-Benz. concept of modularization undergirds that web with a The spirit of disciplined service engendered in pattern that emphasizes people serving people. Managers, Scania's management by its modular thinking is quite employees, and suppliers build each other's competencies different from the spirit that finance-oriented manage­ to serve customers and the community. With everyone in by-results thinking has engendered in most businesses in Scania focused on mastering and executing the pattern, America and Europe during the past three to four the result - profit - appears to take care of itself. decades. Most European and American companies, in 1\\'0 recent examples, one from a supplier and one contrast to Scania, manage by results, not by pattern (or from a customer, show how this people-focused pattern process).6 They leave the determination of how things affects long-run performance. First, an English parts sup­ are done to the whim of each individual worker or man­ plier that has worked with Scania for over 40 years ager. Employees are told to pursue cost or profit targets recently explained why Scania was able to secure parts by manipulating people and processes, not by mastering and materials with relative ease even while sharply the discipline of a standardized pattern of work. In other increasing its annual output rate this past year (from words, the means is subordinated to the end. To man­ about 30,000 units to more than 45,000 units). They age by pattern, however, implies giving priority to the attribute this absence of supply bottlenecks largely to means. This makes every act valuable in its own right, Scania's efforts to build its suppliers to "best in the class" not just something to finish while racing mindlessly to status. Over the years, this particular supplier had come reach an end result down the road. How something gets to regard Scania as their best customer - "the most done becomes as important as what is done - a senti­ trustworthy, the best paying, and the most innovative ment expressed by the late Dr. W. Edwards Deming and source of new ideas." Consequently, they gave Scania's implicit in every ancient religious tradition; namely, do orders the priority that enabled Scania to smoothly ramp things the right way and the results you are capable of up production to record levels in a short period. The sec­ achieving will happen. It should surprise no one that the ond example of people-focused performance comes from absence of disciplined attention to pattern makes prof­ a customer, a hauler located in northern Sweden. This itability more elusive, more erratic, and more difficult to hauler appreciated Scania's long-standing policy of sustain over the long run in fragmented companies that 13 May/June 1995 The PRT Range Program Scania

Figure 3. This figure portrays 168 out of more than 250 different trucks that Scania could produce from different combinations of frame, engine, gearbox, axle, and cab modules in 1980, the year the company launched its modular design concept. Silhouettes across the bottom of the figure show varieties of the different frames (medium, heavy, and extra heavy), engine sizes (9, 11, and 14 litre), gearboxes (5-speed, 10-speed, and automatic), and cabs (three forward-control and two bonneted). (Not shown here are axles, driveshafts, and other components.) Scania uses this parsimonious array of standardized component modules to offer buyers custom-built trucks that serve myriad individual requirements, including urban delivery, local haulage, long-distance work, heavy-duty work, and more. As of 1995, Scania's range includes two forward-control types (P and R), and one bonneted type (T) in over 300 different varieties.

manage by results than in Scania, where mastery of cus­ modularization in the product design area, where modu­ tomer-focused thinking connects people and their work lar design principles create a systemic view of reality that in a holistic pattern. says parts derive meaning from the whole, not that the Using modular thinking as a template, Scania's whole is defined by the sum of its parts. In this case the executive team is working to reinforce attention to that whole is something more than just a product - the holistic pattern - to how things are done - through­ truck. It also is more than either the company or the cus­ out the entire organization, from product design to after­ tomer. It is both at the same time. The essential thrust of sale service. Modular thinking will provide a warp thread the modular design concept, as employed in product that holds together the pieces of the company, energizing design at Scania, is that the financial success of each ­ each part with a common devotion to the goal of develop­ company and customer - depends on the mutual suc­ ing the organization's competencies to serve customer cess of both (that is, the whole system). wants. That purpose already is evident from the role of All top managers in Scania have given careful

14 Target Volume 11, Number 3 European Versus American Strategies Historically, European heavy truck manufacturers have been more highly integrated than their counterparts in the United States. American truck makers tend to focus on assembly of engines, gearboxes, axles, and other components purchased from outside suppliers, whereas European builders generally develop and produce their own components. The European way gives customers awell-matched vehicle in which all components work as attention to that concept for the last 15 years, mastering asmooth system. Moreover, the manufacturer generally assumes responsibility for ser­ the details of how standardized component modules vicing and maintaining the entire vehicle. The American way, in contrast, gives cus­ serve both customer and company at the same time. tomers greater freedom of choice in specifying the design of the vehicle. However, Scania's design engineers articulate the full array of fin­ after-sale service and maintenance must be entrusted to the various component suppliers. This difference in strategies creates customer expectations in the United States that ished truck variants in a matrix of 300 or so cab and make it very difficult for European truck manufacturers to operate in their accustomed frame combinations known as the "PRT range" (see manner. Consequently, European makers who have ventured into the U.S. market - in Figure 3). Everyone in top management is mindful of all cases by acquiring domestic truck companies have found it necessary to adopt the the combinations and patterns inherent in that matrix American way. Scania is alone among the world's leading truck makers to have chosen and everyone understands that selling trucks designed not to grow by acquisition. So far, their devotion to producing the entire truck has within that range simultaneously serves the needs of caused them to bypass the American market. both customer and company. In dealing with customers or in making a sale, no one would depart from design specifications in the matrix either to cut costs by skimp­ dedication to this difference explains its long-standing ing on components or to drive a sale by overloading commitment to vertical integration that has deterred the components. Either way, the gain to company or cus­ company, so far, from venturing into the North tomer would be offset by a loss to the other. Both cus­ American market (see box above). tomer and company gain when trucks are sold that To lock in each customer for life, Scania people combine modules within the pattern of the matrix. must do more than merely follow and listen to the cus­ Top management at Scania is now taking steps to tomer. They also must lead and anticipate the customers' insure that this systemic, customer-driven style of modu­ needs. As a former director of design once said, "The lar thinking extends to every person and every activity in company always must be looking around the corner and the company, not just to product design. This effort rests be ahead of the customer with new developments. By the on the growing awareness that the company can do time customers see a new idea, it is too late for the com­ much more to increase the customer's total satisfaction pany to react." It is in this spirit that Scania for the past - and Scania's own long-term profitability - than 40 years has led in development of new technologies simply design a better truck. While a truck's physical associated with turbocharging and turbocompounding, design features embody much that a customer wants, with synchromesh gearboxes, and with environmentally those features themselves may directly satisfy only a small sound engines and trucks. Scania has led the industry part of any customer's total wants over the economic life since the early 1980s in achieving improved fuel econo­ of the truck. Acustomer's total satisfaction from owning a my (20 percent less fuel with 30 percent more power), truck comes from everything that ownership does to engine emissions (NO x [the pollutant is generally make the customer's business more enjoyable and more referred to as nitrogen oxide] per ton-km down 50 to 65 profitable. To serve the customers' needs in this total percent), exterior noise levels (down 85 percent), hours sense means enlisting and focusing the talents of every for service and maintenance per year (down from about person in the organization, including outside suppliers. 100 to 10), and vehicle safety (better structural design Product design is just the first step along an end­ and improved electronic braking and gear changing). less pathway a company can follow, if it chooses, to lock To a large degree, Scania's top managers already in each customer for life. Results-focused companies too demonstrate the capacities needed to profitably lock in often see the pathway to profitability extending no fur­ customers. For example, each executive has a deep under­ ther than the sale itself. However, Scania is already far standing of issues and concerns outside his own immedi­ down the road to understanding that the pathway to sus­ ate area of expertise. This shared understanding is explicit tained long-run profitability begins at the time of sale. in position titles such as "development and production" Thus, a major focus of future corporate communica­ or "production and control." Evidence of this sharing tions and training efforts will be to impress on everyone appears when discussions with almost any executive in in the organization the difference between profitably the company reveal a deep familiarity with design engi­ satisfying customers with a superior product and prof­ neering and manufacturing engineering issues and often itably locking in customers for life. In part, Scania's a working knowledge of problems encountered in mar-

15 May/june 1995 lar design implications of the shift. He is therefore able to profitably discuss the issue with design engineers and then determine himself the manufacturing implications of any proposed change. When each executive under­ stands product development, production, and customer awareness, they see these as forming an organic whole and recognize how one member affects the others. Thus, building on a web of relationships generated by widely shared modular thinking, Scania has achieved quite nat­ urally and without upheaval the responsiveness and flexi­ bility that countless corporations around the world today Figure 4. Scania chassis in front of the Scania factory in Angers, France. are trying to achieve by artificially reengineering them­ selves into "flat" or "horizontal" organizations. Wrap-up keting, distribution, and after-sales service. This knowl­ Apressing concern among businesses today is to edge is not surprising since turnover in the executive find dependable measures of performance. Indicative of ranks is very low and most executives with ten years or this concern is the attention companies pay to new ideas more experience have worked in at least two areas of the for "balanced scorecards," "vital signs," "profit pyra­ company. Moreover, almost all have formal training in mids," and other measurement nostrums. Scania's expe­ engineering. Because managers possess highly-developed rience suggests, however, that a better indicator of a cross-functional competencies, they communicate easily. company's ability to generate sustained high perfor­ In fact, rapid, informal, and informed communication mance than traditional measurements is the similarity of among members of Scania's management team creates the company's practices and behavior to patterns found subtle linkages whereby design, production, and market­ in nature. ing all make an enormous contribution to Scania's Among the patterns that scientists observe in "leanness," flexibility, and customer responsiveness. This nature, none seems more pervasive than endless fractal­ communication surely contributes enormously to the ization - that is the infinite repetition of a pattern at company's superior financial record. successive orders of magnification that occurs in nonlin­ Another shared capacity among Scania's top man­ ear mathematical forms (such as Benoit Mandelbrot's agers is a desire to walk directly in the customer's shoes "Julia sets"), in cloud formations, in rock formations, in as often as possible. To that end virtually all members of river systems, in coastlines, and much more. In a sense, the top executive team are licensed to drive all the com­ fractalization is another way of saying "repetition with pany's products. Moreover, they frequently make modularity." Therefore, we can say that with modulariza­ overnight trips driving trucks with their own and com­ tion businesses use one of nature's fundamental patterns petitors' customers to experience firsthand the customer's to address the chronic problems they face when trying to point of view. Because of this direct contact with cus­ provide customers with variety at low cost. tomers and their particular expertise, all Scania execu­ One place in nature where the pattern of modular­ tives understand and can knowledgeably discuss the ization is particularly evident is in evolution - the pat­ broadest possible implications of any problem that may tern of life itself. Evolution reflects continuous change arise. Their communication and interaction is not unlike that builds to greater and greater complexity upon a that of a cross-functional design team that never stops foundation of very simple means. Abusiness is probably designing and improving, rather than disbanding at the on the pathway to sustained profitability if "rich in ends, end of a project. For example, a production manager but simple in means" is a basic pattern underlying its driving overnight with a customer may discover a nag­ thinking and behavior. But those businesses that try to ging inconvenience that can be rectified by shifting the finesse the issue by engaging in mass production tech­ location of a dashboard instrument. Probably the pro­ niques implicitly follow a pattern opposite to what we see duction manager already has a good sense of the modu- in nature. What we see in nature is the creative unfold- 16 Target Volume 11, Number 3 ing of life towardforms ofever increasing complexity. Indeed, the essence of life is the unfolding of diversity. The opposite of life is described by words such as eternal sameness, entropy, and homogeneity. Homogeneous mass production is, therefore, the pattern of death. It should not be surprising, therefore, that companies that have attempted to achieve variety and diversity by following batch-oriented patterns of mass-production usually end up suffocating in quagmires of complication, not flour­ ishing in the power of complexity.7 Nature suggests that modularity is a way to achieve diversity efficiently, because nature seems to follow mod­ Figure 5. A Scania T113H4x2 tipper at a gravel pit at Autopista del Sol in Buenos Aires. ular principles in generating the evolving diversity of species on earth. This is evident in the profound similar­ ities in bone structure among wide classes of animal life, 3. Linking mass production of standardized components with assem­ and similarities in circulatory structure in plant and ble-to-order in final assembly has sometimes been referred to as "mass customization." Astep beyond that, achieved only partially animal life. Modularity is a key pillar underlying the and by only a handful of relatively small manufacturers to date, is process of life itself - the continual and efficient to fabricate engineer-to-order components that flow on a pull basis into final assemble-to-order. In other words, assemble-to-order unfolding of newness and diversity. Businesses invite from non-standard parts that are fabricated with nearly zero setup problems if they pursue profit targets without regard for time, including design time as well as machine setup time. such a modular pattern. 4. Sjostrom, Sverker, "The Modular System in Truck Manufacturing," The Saab-Scania Griffin, 1990/91, pp. 2-12. Thus, the patterns inherent in evolution - in 5. Volvo sold 10-15 percent more trucks. nature's modular design strategy - probably give a 6. For more on the concept of remote-control management by results, see business an excellent means of assessing the potential for H. Thomas Johnson, Relevance Regained' From Top-Down Control success or failure of any program it embarks on. Three to Bottom-Up Empowerment, New York: The Free Press, 1992. 7. For more on this, see the discussion of "spaghetti junction" in such thought patterns summarize the essential messages Johnson, Relevance Regained, pp. 37-41. contained in Scania's modular philosophy: • Focus every act on serving the richest possible array of H. Thomas Johnson is the Retzlaff Professor of Quality customer needs by the simplest means, as though prof­ Management in the School ofBusiness Administration at Portland itability depended on it State University (Oregon). Afrequent contributor to Target, Johnson speaks and consults regularly to corporate and profes­ • How something is done is inseparable from what is sional groups around the world on themes from his international­ done ly-acclaimed books Relevance Regained: From Top-Down Control to • Don't pursue an action for the "result" it supposedly Bottom-Up Empowerment (New York: The Free Press, 1992) and achieves if it fails to serve customers and does not build Relevance Lost: The Rise and Fall of Management Accounting the organization's human competencies. (Boston: Harvard Business School Press, 1987). Anders Broms is the managing partner of SAM Samarbetande Although it will not be a foolproof technique, gaug­ Konsulter AB, an international cost management consultancy ing any proposed policy or action against these patterns based in Stockholm, Sweden since 1979. s:4M Samarbetande has will do much to insure that a company's financial perfor­ published two path-breaking works on modern activity-based cost mance will be on a pathway to sustained profitability. In management, Competitive Cost Management (London: Business other words, a business may do better to appraise the mer­ International, 1990) and LOnsamma Kunder, LOnsamma Foretag its of a proposed action by "mapping" the action onto (Stockholm: Brombergs, 1993). The firm's principal clients nature's patterns of growth and change, not by attempt­ include Ericsson, Scania, Avesta Sheffield, andAlfa Laval. ing to "measure" the action's eventual consequences. © 1995AME® 1. Aphrase coined originally by the late Norwegian philosopher/ecol­ For information on reprints, contact: ogist Arne Naess. Association for Manufacturing Excellence 380 West Palatine Road, Wheeling, Illinois 60090-5863 708/520-3282 2. Ulrich, Karl T.and Karen Tung, "Fundamentals of Product ~ Modularity," MIT Working Paper #335-91-MSA, September 1991. 17 May/june 1995